Coinbase Backs Grayscale's Ethereum Trust Conversion Amid Security vs Commodity Debate
Summary:
U.S. crypto exchange Coinbase supports Grayscale's plan to convert its Ethereum Trust into a spot Ether exchange-traded product (ETP), stressing that Ether is a commodity, not a security. This argument is based on approval by the Commodity Futures Trading Commission, statements by Securities and Exchange Commission officials, and court rulings. Coinbase also affirmed that Ethereum's blockchain significantly reduces the likelihood of fraud and manipulation. However, S&P Global analysts express concern that Ethereum ETFs including staking could introduce new concentration risk to the blockchain network.
Coinbase, a prominent cryptocurrency exchange in the United States, is supporting Grayscale's plan to convert its Ethereum Trust to a spot Ether exchange-traded product, arguing that Ether does not qualify as a security. On February 22, Paul Grewal, Coinbase's chief legal officer, shared a 27-page letter in which the company lays out legal, technical, and financial justifications for an Ether exchange-traded product. The document comprises five main points, with the most significant one being that Ether is classifiable as a commodity rather than a security. They stipulated that the Commodity Futures Trading Commission, Securities and Exchange Commission officials, and court rulings support this view.
The company also argued that the SEC’s approval for spot Bitcoin ETPs is also applicable to an Ethereum ETP. They pointed out that the ownership and trading of ETH are well-distributed and that the commodity has high liquidity. Furthermore, ETH's inbuilt technological security measures significantly reduce its susceptibility to fraud, according to Coinbase. The company added that it uses advanced market surveillance to oversee trading on its platforms.
Coinbase's appeal comes in response to a proposed rule change submitted by NYSE Arca to list Grayscale's Ethereum Trust as an Ethereum exchange-traded product. Before the SEC makes a decision on the proposed change, it usually solicits public opinion. However, analysts from S&P Global flagged that Ethereum ETFs including staking may pose a new concentration risk. They underlined how institutional participation via such Ether ETFs could potentially lead to risks, especially if a single entity is chosen to stake the majority of the Ether in these ETFs.
Published At
2/22/2024 8:20:52 AM
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